stakeholder pension or isa?

[johnny37]

If my employer did not contibute into my pension would it be better to start a regular savings cash or shares isa?

[dzug]

Better from what point of view?

[dasherman]

You may find this an interesting read :-

http://www.telegraph.co.uk/money/main.jhtml?xm l=/money/2007/12/03/cmpen03.xml

Personally I think a mixture of both pensions and ISA's is best. Pensions give you a guaranteed but often small and taxable income in relation to the amount of money you have saved,especially if you retire early.

While ISA's enable you to take the money when you want to,are totally free from tax,thus giving you more potential to retire earlier.

Obviously everyone's circumstances are different and if you have access to a final salary pension through your employer then grab it with both hands.But let's say you want to retire early at 55 and you've got a personal pension pot of �100,000. You would get a pension of around �3,500 per year!!!

Source:- http://www.annuity-bureau.co.uk/AF_CMS/Resourc es/Annuity%20bureau/rates_rpi.html

However if you have �100,000 in an ISA with an interest rate of 6% (current aprox rates),you could get an income of �6,000 per year and you still have the option of spending some capital aswell. Although the income will obviously fall as a result.

That's how I look at it anyway!

[johnny37]

Thanks for that. I will read the telegraoh link. What I can't get my head round is that for a pension the contributions are tax free. Is that better than saving taxed income into an isa if the eventual rewards are tax free. What I am asking (I think!) would the pension grow faster/bigger as there is more money going into it or does it all balance out (swings and roundabouts) in the end? I am a basic rate taxpayer.

[dasherman]

When you put money into a pension you get tax relief,so if contribute �78 per month then the tax man will add another �22 to make it up to �100. However from April 08 when the tax bands change from 22% to 20%,you will have to put in �80 to get �20 from the tax man.

If you put the same amount per month in both a pension and an ISA then the pension should grow quicker because you are getting the tax relief. But the difference is that when you draw the pension you will have to pay tax on it,in the same way as you pay tax on your earned income now.

Which one grows the fastest isn't really the point,it's how much you get when you retire that counts. So what the Telegraph article is saying that if you are a basic rate tax payer now,based on the new 20% band, and you expect to still be one in retirement (most people probably are) then you may well be better off with ISA's.